Collapse to view only § 1282. Deferral of interest deduction allocable to accrued discount
- § 1281. Current inclusion in income of discount on certain short-term obligations
- § 1282. Deferral of interest deduction allocable to accrued discount
- § 1283. Definitions and special rules
§ 1281. Current inclusion in income of discount on certain short-term obligations
(a) General rule
In the case of any short-term obligation to which this section applies, for purposes of this title—
(1) there shall be included in the gross income of the holder an amount equal to the sum of the daily portions of the acquisition discount for each day during the taxable year on which such holder held such obligation, and
(2) any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) shall be included in gross income as it accrues.
(b) Short-term obligations to which section applies
(1) In general
This section shall apply to any short-term obligation which—
(A) is held by a taxpayer using an accrual method of accounting,
(B) is held primarily for sale to customers in the ordinary course of the taxpayer’s trade or business,
(C) is held by a bank (as defined in section 581),
(D) is held by a regulated investment company or a common trust fund,
(E) is identified by the taxpayer under section 1256(e)(2) as being part of a hedging transaction, or
(F) is a stripped bond or stripped coupon held by the person who stripped the bond or coupon (or by any other person whose basis is determined by reference to the basis in the hands of such person).
(2) Treatment of obligations held by pass-thru entities
(A) In general
This section shall apply also to—
(i) any short-term obligation which is held by a pass-thru entity which is formed or availed of for purposes of avoiding the provisions of this section, and
(ii) any short-term obligation which is acquired by a pass-thru entity (not described in clause (i)) during the required accrual period.
(B) Required accrual period
For purposes of subparagraph (A), the term “required accrual period” means the period—
(i) which begins with the first taxable year for which the ownership test of subparagraph (C) is met with respect to the pass-thru entity (or a predecessor), and
(ii) which ends with the first taxable year after the taxable year referred to in clause (i) for which the ownership test of subparagraph (C) is not met and with respect to which the Secretary consents to the termination of the required accrual period.
(C) Ownership test
(D) Pass-thru entity
(c) Cross reference
(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 548; amended Pub. L. 99–514, title XVIII, § 1803(a)(7), (8)(A), Oct. 22, 1986, 100 Stat. 2793, 2794.)
§ 1282. Deferral of interest deduction allocable to accrued discount
(a) General rule
Except as otherwise provided in this section, the net direct interest expense with respect to any short-term obligation shall be allowed as a deduction for the taxable year only to the extent such expense exceeds the sum of—
(1) the daily portions of the acquisition discount for each day during the taxable year on which the taxpayer held such obligation, and
(2) the amount of any interest payable on the obligation (other than interest taken into account in determining the amount of the acquisition discount) which accrues during the taxable year while the taxpayer held such obligation (and is not included in the gross income of the taxpayer for such taxable year by reason of the taxpayer’s method of accounting).
(b) Section not to apply to obligations to which section 1281 applies
(1) In general
(2) Election to have section 1281 apply to all obligations
(A) In general
(B) Period to which election applies
(c) Certain rules made applicable
(d) Cross reference
(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 549; amended Pub. L. 99–514, title XVIII, § 1803(a)(8)(B), Oct. 22, 1986, 100 Stat. 2794.)
§ 1283. Definitions and special rules
(a) Definitions
For purposes of this subpart—
(1) Short-term obligation
(A) In general
(B) Exceptions for tax-exempt obligations
(2) Acquisition discount
The term “acquisition discount” means the excess of—
(A) the stated redemption price at maturity (as defined in section 1273), over
(B) the taxpayer’s basis for the obligation.
(b) Daily portion
For purposes of this subpart—
(1) Ratable accrual
Except as otherwise provided in this subsection, the daily portion of the acquisition discount is an amount equal to—
(A) the amount of such discount, divided by
(B) the number of days after the day on which the taxpayer acquired the obligation and up to (and including) the day of its maturity.
(2) Election of accrual on basis of constant interest rate (in lieu of ratable accrual)
(A) In general
At the election of the taxpayer with respect to any obligation, the daily portion of the acquisition discount for any day is the portion of the acquisition discount accruing on such day determined (under regulations prescribed by the Secretary) on the basis of—
(i) the taxpayer’s yield to maturity based on the taxpayer’s cost of acquiring the obligation, and
(ii) compounding daily.
(B) Election irrevocable
(c) Special rules for nongovernmental obligations
(1) In general
In the case of any short-term obligation which is not a short-term Government obligation (as defined in section 1271(a)(3)(B))—
(A) sections 1281 and 1282 shall be applied by taking into account original issue discount in lieu of acquisition discount, and
(B) appropriate adjustments shall be made in the application of subsection (b) of this section.
(2) Election to have paragraph (1) not apply
(A) In general
(B) Period to which election applies
(d) Other special rules
(1) Basis adjustments
(2) Double inclusion in income not required
(3) Coordination with other provisions
(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 549; amended Pub. L. 99–514, title XVIII, § 1803(a)(1)(B), Oct. 22, 1986, 100 Stat. 2792.)